40.7k views
3 votes
On December 31, 2017, Houser Company granted some of its executives options to purchase 150,000 shares of the company's $50 par common stock at an option price of $60 per share. The Black-Scholes option pricing model determines total compensation expense to be $3,000,000. The options become exercisable on January 1, 2018, and represent compensation for executives' past and future services over a three-year period beginning January 1, 2018. What is the impact on Houser's total stockholders' equity for the year ended December 31, 2017, as a result of this transaction under the fair value method

User Nitramk
by
8.6k points

1 Answer

2 votes

Answer: $1,000,000 decrease

Step-by-step explanation:

From the information above, the Black-Scholes option pricing model determines that the total compensation expense to be $3,000,000 and the option was for a 3 year period.

The impact on Houser's total stockholders' equity for year ended December 31, 2017, based on this transaction under the fair value method will be:

Total compensation expense/time period= $3,000,000/3= $1,000,000

decrease in net income because of compensation expense.

User Dustin Hoffner
by
7.9k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.